Unit 1 Flashcards
(17 cards)
What are the causes of a market failure?
Externalities (when production affects bystanders), market power
Opportunity cost
Whatever must be given up to attain an item
Marginal changes
Incremental adjustments to existing plan
What are the 2 roles economists play?
- Scientists (explaining world)
- Policy advisors (improving world)
What are the 3 factors of production?
Labor, land capital
What is capital?
Buildings and machines used in production
What are the 2 markets in a circular-flow diagram?
- Markets for goods and services
- Markets for factors of production
Higher slope in PPF means what?
Lower opportunity cost
What’s the reason for the PPF shifting outward?
Economic growth
What indicates a bow-shaped PPF?
Increasing opportunity cost
What does increasing opportunity cost indicate?
A bow-shaped PPF
What does the short-run tradeoff between inflation and unemployment imply?
An increase in inflation will be accompanied by an increase in employment
What is the relationship between a country’s productivity and standard of living?
Positive
What does the PPF illustrate?
Combinations of output than an economy can produce
In a self-sufficient country, where in the PPF does production lie?
In the middle
Why are some PPF bow-shaped? (increasing opportunity cost)
Due to specialization (best specializers move away from area of expertise to area not so great at)
Why can trade be beneficial?
Helps manage scarcity by improving efficiency because it uses less opportunity cost
